Introduction to the Global Economy

The other modules discuss the phenomenon of globalization and the ongoing global economic crisis among other topics. This module is intended to discuss the salient aspects of the global economy including the structural features and the way in which several competing trends and factors influence the workings of the global economy. For instance, the global economy is dominated by the United States, Europe and China in the current decade with the balance of power likely to shift towards China in the coming years.

Though the United States is in deep recession, there are many optimistic experts who aver that the country can pull through its worst recession since the Great Depression and reinvent itself and rejuvenate itself. Of course, Europe remains stuck in sovereign debt crises and deleveraging brought upon due to excessive debt and fiscal profligacy along with loose monetary policies. On the other hand, China is undergoing a structural shift in the way its economy is ordered with more emphasis on domestic consumption driven growth instead of just relying on exports alone.

The present state of the global economy has meant that other emerging economies like India, South Africa and Brazil can hope to grow at moderately high levels if the current projections are anything to go by. However, what can upset the calculations of all these countries is the fact that for the last four years, most countries in the world have relied on loose money or in other words, printing money to stimulate growth. This leads to inflation in the absence of the real economy growing and hence, central bankers in most countries in the world are apprehensive about the effect of inflation. This is the primary agenda behind the tight monetary policy that has been followed in many countries including India.

However, the United States and China are nowhere near tightening their purse strings and on the other hand, they have embarked on a high stimulus driven growth which means that pretty soon they would have to deal with the problem of inflation. Further, since the Dollar is the reserve currency and China has humungous reserves of Dollars, both these countries can afford to embark on stimulus since the rest of the world would continue to trade in Dollars which means that for the US, they can print as much as they can and for China they can use their reserves in any way that they deem fit.

One country that has managed the best of both worlds is Germany which because of its high productivity and export driven growth has managed to outperform nearly every other economy in the world. However, the ongoing sovereign debt crisis in Europe has cast a shadow on Germany’s ability to finance the excesses of the other European countries. Hence, the situation needs to be keenly watched for the way in which Germany and the Eurozone would handle the crisis.

In conclusion, this article has given a thousand feet overview of the global economy. The subsequent articles discuss the many dimensions of the global economy and its workings in depth.


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Globalization